James ConeyMay 22 2019

In times of doubt: mother knows best

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How would you feel if your mum found out about this? That is a pretty good starting point for most moral dilemmas in life and, I would say, it equally applies in business. Would you be happy to explain this to your dear old mother, and what would she say?

That is the thought that comes to mind the more the advice given on some defined benefit pension transfers seems to unwind.

Last week, the Financial Times revealed that 30 individuals and companies were being probed for poor pension transfer advice, while a further 15 had action taken against them for misconduct.

I know what you are going to say: this is just a few rotten eggs. You may well be right.

So let us ask ourselves, what would mum say?

Plus it was inevitable that a combination of high transfer values from a couple of years ago and the pension freedoms were going to be a breeding ground for the unscrupulous.

But since 2015 we have seen more than 200,000 savers opt to exchange DB pensions for a cash lump sum – even a sense check of that suggests this seems high, given that as a rule of thumb it is usually unsuitable rather than suitable.

So let us ask ourselves, what would mum say?

To start with you have to ask yourself about the landscape that allows this to happen, and by that I mean contingent charging.

Sit down and explain this: an adviser gets nothing if they advise someone to do what is usually the right thing and not switch their pension, but they pocket a whopping great fee if they persuade them to do what is often the wrong thing and move it. Oh, and that fee gets bigger the more they convince them to take.

Now advisers cannot tell me in the real world that passes any kind of sanity check.

Some people are crooks, but sometimes bad incentives drive bad behaviour. Just look at packaged bank accounts and payment protection insurance, the sale of which were both driven by poor remuneration schemes for staff.

So no, contingent charging does not look good. It remains a mystery to me why the Financial Conduct Authority walked away from stiffer analysis of it when it undertook a market review.

Then you have to ask whether you knew this surge was inevitable. And the answer again is, of course you did, so what did you do about it?

For most, the answer is not a lot. And here lies the fundamental problem at the heart of the advice community – they are rarely prepared to call out bad behaviour.

So many times I have heard advisers privately bemoan the tactics and charges of one giant company or another, or have told how they refused to sell one product because they knew it looked bad while watching on in horror as others did, but they never did anything about it when it happened.

If independent advice is the gold standard of financial planning, then advisers are beholden to be the guardians of quality.

The only way to restore the reputation of advice, the only way to build confidence, is to call out the rogues as they are up their tricks, not months afterwards.

No more ‘mum’s the word’, time to make her proud.

Chicken fever

The FCA has managed to do its usual stellar job of regulating the savings market.

In a series of investigations, The Sunday Times revealed a spate of cloned products and financial companies operating. And we discovered this by using Google. We justtyped in key words such as ‘best cash Isas’ and ‘pensioner bonds’ to find cloned and phoney products on sale.

It really was not that hard, unless of course you are the FCA, which has failed to do this even once.

To its credit, the regulator acts fast once alerted to suspicious activity, but like a headless chicken, needs pointing in the right direction.

But had it taken the simple step of using Google, it would have probably spotted London Capital & Finance and, you never know, may have even spotted that something odd was going on.

Presumably, the regulator’s chief executive Andrew Bailey has left the LCF scandal off his CV as he applies for the job of Bank of England governor.

He will just have to hope no one on Threadneedle Street knows how to use Google either.

Wealthy words

Seventeen. That is how many Royal-themed press releases I received on the day baby Archie’s arrival was announced by Prince Harry.

And all but one of them was about building a future-proof nest egg. 

The gem of insight they revealed to do this was: save regularly. 

Yes, people really do waste their time putting out this stuff.

Of course, the one bit of missing advice that is a real game changer is: be born into wealth. Then you will not have to worry about saving ever.

James Coney is money editor of The Sunday Times